What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-06 compared with 2025-05-08 · 70 added, 51 removed, 123 unchanged (50% of the section changed)

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We are the only global medical device company focused exclusively on providing a comprehensive trauma and deformity correction, scoliosis, sports medicine, specialty bracing and clinical services to the pediatric orthopedic market in order to improve the lives of children with orthopedic conditions.

We design, develop and commercialize innovative orthopedic implants, instruments and specialized braces to meet the needs of pediatric surgeons or orthotists and their patients, who we believe have been

largely neglected by the orthopedic industry.

We currently serve three of the largest categories in this market.

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and international markets by increasing investments in consigned implant and instrument sets, strengthening our global sales and distribution infrastructure, and expanding our product offering as well as our O&P clinic network.

Our global inventory, which primarily consists of implants and instruments held in our warehouses, with third-party independent sales agencies or distributors, or consigned directly with hospitals, are

considered finished goods and are purchased from third parties.

The majority of this inventory is non-sterile, metallic implants and instruments that do not have an expiration date or shelf life.

We continuously monitor our global inventory for excess or obsolete items in relation to estimated forecasted product demand and product life cycles.

Revenue is not recognized at the time of consignment, as we maintain control over the inventory.

Revenue is recognized only upon implantation, at which point an invoice is issued.

For the six months ended June 30, 2025, consignment sales accounted for approximately 68% of our total net sales.

Inventory held on consignment at sales agencies, distributors, or other customers is 61% of gross inventory.

Social Impact

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We encourage the readers of this document to read our risk factors in their entirety contained in Item 1A “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 5, 2025 and in other reports filed with the SEC that discuss the risks and factors that may affect our business.

Summary of Statements of Operations for the Three Months Ended March 31, 2025 and 2024

The following table sets forth our results of operations for the three months ended March 31, 2025 and 2024 (dollars in thousands):

Three Months Ended March 31,

Summary of Statements of Operations for the Three and Six Months Ended June 30, 2025 and 2024

The following table sets forth our results of operations for the three and six months ended June 30, 2025 and 2024 (dollars in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 Increase

(Decrease) % 2025 2024 Increase (Decrease) %

Net revenue $ 61,082 $ 52,802 $ 8,280 16 % $ 113,493 $ 97,487 $ 16,006 16 %

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Net loss $ (7,113) $ (6,029) $ 1,084 18 % $ (17,772) $ (13,834) $ 3,938 28 %

The following tables set forth our net revenue by geography and product category for the three months ended March 31, 2025 and 2024 (dollars in thousands):

Three Months Ended March 31,

The following tables set forth our net revenue by geography and product category for the three and six months ended June 30, 2025 and 2024 (dollars in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Product sales by geographic location:

2025 2024 2025 2024

$ 48,147 $ 41,249 $ 89,039 $ 75,554

International 12,935 11,553 24,454 21,933

Total $ 61,082 $ 52,802 $ 113,493 $ 97,487

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Product sales by category:

2025 2024 2025 2024

Trauma and deformity $ 41,655 $ 37,771 $ 79,521 $ 71,073

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Total $ 61,082 $ 52,802 $ 113,493 $ 97,487

Net revenue increased $7.7 million, or 17%, from $44.7 million for the three months ended March 31, 2024 to $52.4 million for the three months ended March 31, 2025.

The increase during the three months ended March 31, 2025 was primarily driven by strong performance across global Trauma and Deformity, Scoliosis and OP Specialty Bracing.

Trauma and deformity sales increased $4.6 million, or 14%, from $33.3 million during the three months ended March 31, 2024, to $37.9 million for the three months ended March 31, 2025.

The increase for the three month period ended March 31, 2025 was primarily driven by strong growth across numerous product lines, specifically our Cannulated Screws, PNP Femur, PediPlate, external fixation and Pega systems.

Scoliosis sales increased $3.5 million, or 34%, from $10.2 million during the three months ended

March 31, 2024, to $13.7 million for the three months ended March 31, 2025.

The increase for three month period ended March 31, 2025 was primarily driven by increased sales of our RESPONSE 5.5/6.0 and ApiFix systems and revenue generated from 7D Technology.

Sports medicine / other decreased $0.3 million, or 25%, during the three months ended March 31, 2025.

Net revenue increased $8.3 million, or 16%, from $52.8 million for the three months ended June 30, 2024 to $61.1 million for the three months ended June 30, 2025.

Net revenue increased $16.0 million, or 16%, from $97.5 million for the six months ended June 30, 2024 to $113.5 million for the six months ended June 30, 2025.

The increase during the three and six months ended June 30, 2025 was primarily driven by strong performance across global Trauma and Deformity, Scoliosis and OP Specialty Bracing.

Trauma and deformity sales increased $3.9 million, or 10%, from $37.8 million during the three months ended June 30, 2024, to $41.7 million for the three months ended June 30, 2025, and sales increased $8.4 million, or 12%, from $71.1 million for the six months ended June 30, 2024 to $79.5 million for the six months ended June 30, 2025.

The increase for the three and six month periods ended June 30, 2025 was primarily driven by strong growth across numerous product lines, specifically our Cannulated Screws, PNP Femur, PNP Tibia, DF2, and OPSB.

Scoliosis sales increased $4.8 million, or 35%, from $13.7 million during the three months ended June 30, 2024, to $18.5 million for the three months ended June 30, 2025, and sales increased $8.3 million, or 35%, from $23.9 million for the six months ended

June 30, 2024 to $32.2 million for the six months ended June 30, 2025.

The increase for the three and six month periods ended June 30, 2025 was primarily driven by increased sales of our RESPONSE 5.5/6.0 and revenue generated from 7D Technology.

Sports medicine / other decreased $0.4 million, or 33%, during the three months ended June 30, 2025, and $0.7 million, or 29%, during the six months ended June 30, 2025.

Nearly all the change in each category was due to an increase or decrease in the unit volume sold and not a result of price changes.

Cost of Revenue and Gross Margin

Cost of revenue increased $1.6 million, or 13%, from $12.5 million for the three months ended March 31, 2024 to $14.1 million for the three months ended March 31, 2025.

The increases were due primarily to sales volume.

Gross margin was 73% and 72% for the three months ended March 31, 2025 and March 31, 2024, respectively.

Cost of revenue increased $5.1 million, or 42%, from $12.0 million for the three months ended June 30, 2024 to $17.1 million for the three months ended June 30, 2025.

Cost of revenue increased $6.7 million, or 27%, from $24.5 million for the six months ended June 30, 2024 to $31.2 million for the six months ended June 30, 2025.

The increases were due primarily to sales volume as well as higher sales of 7D units and international set sales.

Gross margin was 72% and 77% for the three months ended June 30, 2025 and June 30, 2024, respectively.

Gross margin was 72% and 75% for the six months ended June 30, 2025 and June 30, 2024, respectively.

The lower gross margin was driven by a higher percentage of sales of 7D units as well as international set sales.

Sales and Marketing Expenses

Sales and marketing expenses increased $2.4 million, or 17%, to $16.6 million for the three months ended March 31, 2025 from $14.2 million for the three months ended March 31, 2024.

The increase in the three months ended March 31, 2025 was due primarily to increased sales commission expenses and an overall increase in volume of units sold.

Sales and marketing expenses increased $2.5 million, or 15%, to $19.1 million for the three months ended June 30, 2025 from $16.6 million for the three months ended June 30, 2024.

Sales and marketing expenses increased $4.9 million, or 16%, to $35.7 million for the six months ended June 30, 2025 from $30.8 million for the six months ended June 30, 2024.The increase in the three and six months ended June 30, 2025 was due primarily to increased sales commission expenses and an overall increase in volume of units sold.

General and Administrative Expenses

General and administrative expenses increased $5.6 million, or 22%, from $24.7 million for the three months ended March 31, 2024 to $30.3 million for the three months ended March 31, 2025.

The increase for the three months ended March 31, 2025 was due primarily to the additional personnel though clinic acquisitions.

Stock compensation increased $ 1.0 million for the three months ended March 31, 2025 due to the increase in personnel.

Depreciation and amortization expenses decreased $0.2 million, or 5% from $5.0 million for the three months ended March 31, 2024 to $4.8 million for the three months ended March 31, 2025.

General and administrative expenses increased $3.1 million, or 11%, from $27.3 million for the three months ended June 30, 2024 to $30.4 million for the three months ended June 30, 2025, and increased $8.7 million, or 17%, from $52.1 million for the six months ended June 30, 2024 to $60.7 million for the six months ended June 30, 2025.

The increase for the three and six months ended June 30, 2025 was due primarily to the additional personnel though clinic acquisitions and increased lease expense.

Stock compensation increased $ 2.4 million for the six months ended June 30, 2025 due to the increase in personnel.

Depreciation and amortization expenses increased $0.1 million, or 3%, from $4.8 million for the three months ended June 30, 2024 to $4.9 million for the three months ended June 30, 2025, and decreased $0.1 million, or 1%, from $9.8 million for the six months ended June 30, 2024 to $9.7 million for the six months ended June 30, 2025.

Restructuring Expense

In 2024, the Company initiated a global restructuring plan aimed at improving operational efficiency, reducing costs by integrating the ApiFix product into the broader OP Scoliosis portfolio, and reducing staff across all of OrthoPediatrics Corp (the "2024 Restructuring Plan").

In connection with the 2024 Restructuring Plan, the Company recorded restructuring expenses of less than $0.1 million for the three months ended March 31, 2025 compared to $0 for the three months ended March 31, 2024 .

In connection with the 2024 Restructuring Plan, the Company recorded restructuring expenses of $3.0 million for the three and six months ended June 30, 2025 compared to $0 for the three and six months ended June 30, 2024.

Research and Development Expenses

Research and development expenses decreased $0.6 million, or 22%, from $3.0 million for the three months ended March 31, 2024 to $2.4 million for the three months ended March 31, 2025.

The decrease for the three months ended March 31, 2025 was primarily due to the timing of product development during the first quarter of 2024 compared to the first quarter of 2025.

Research and development expenses decreased $0.4 million, or 15%, from $2.5 million for the three months ended June 30, 2024 to $2.2 million for the three months ended June 30, 2025, and decreased

$1.0 million, or 19%, from $5.5 million for the six months ended June 30, 2024 to $4.5 million for the six months ended June 30, 2025.

The decrease for the three and six months ended June 30, 2025 was primarily due to the timing of product development during the first and second quarters of 2024 compared to the first and second quarters of 2025.

Total Other (Income) Expenses

Other income was $0.5 million for the three months ended March 31, 2025 compared to other expense of $0.6 million for the three months ended March 31, 2024, a change of $1.1 million or 185%.

The change for the three months ended March 31, 2025 was primarily driven by an increase in foreign exchange gain.

Other income was $3.6 million for the three months ended June 30, 2025 compared to other expense of $0.4 million for the three months ended June 30, 2024, a change of $4.0 million or 1,043%, and other income was $4.1 million for the six months ended June 30, 2025 compared to other expense of $1.0 million for the six months ended June 30, 2024, a change of $5.1 million, or 514%.

The change for the three and six months ended June 30, 2025 was primarily driven by an increase in foreign exchange gain.

Liquidity and Capital Resources

We have incurred operating losses since inception which resulted in negative cash flows used in operating activities of $4.2 million and $6.7 million for the three months ended March 31, 2025 and 2024, respectively.

As of March 31, 2025, we had an accumulated deficit of $246.2 million.

We have incurred operating losses since inception which resulted in negative cash flows used in operating activities of $14.6 million and $12.8 million for the six months ended June 30, 2025 and 2024, respectively.

As of June 30, 2025, we had an accumulated deficit of $253.3 million.

We anticipate that our losses will continue in the near term as we continue to expand our product portfolio and invest in additional consigned implant and instrument sets to support our expansion into existing and new markets.

Since inception, we have funded our operations primarily with proceeds from the sales of our common and preferred stock, convertible securities and debt, as well as through sales of our products.

At March 31, 2025, we had cash and cash equivalents, restricted cash and short-term investments of $60.8 million.

At June 30, 2025, we had cash and cash equivalents, restricted cash and short-term investments of $72.2 million.

The Company has engaged in ongoing efforts to preserve cash.

For example, the Board of Directors of the Company approved (i) the issuance of unregistered shares of the Company’s common stock representing an aggregate of approximately $3.8 million in value to the members of MedTech in lieu of the three remaining annual $1.3 million cash payments otherwise required under the MedTech Purchase Agreement on or about May 1st of each of 2025, 2026, and 2027;

and (ii) an Amended and Restated Non-Employee Director Compensation Policy that increases the total director compensation from approximately $180 thousand to $207 thousand per year and provides for the payment of the remaining director compensation for 2025 in shares of restricted stock in lieu of cash.

The following table sets forth our cash flows from operating, investing and financing activities for the periods indicated (dollars in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Net cash used in operating activities $ (14,618) $ (12,782)

Net cash used in investing activities (5,987) (3,679)

Net cash used in financing activities (126) (573)

Net cash (used in) provided by investing activities (9,532) 16,018

Net cash provided by (used in) financing activities 24,674 (4,842)

Effect of exchange rate changes on cash, cash equivalents and restricted cash 304 (531)

Net decrease in cash, cash equivalents and restricted cash $ (10,348) $ (9,463)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 828 $ (2,137)

Cash Used in Operating Activities

Net cash used in operating activities was $4.2 million and $6.7 million for the three months ended March 31, 2025 and 2024, respectively.

Net cash used in operating activities was $14.6 million and $12.8 million for the six months ended June 30, 2025 and 2024, respectively.

The primary use of this cash was to fund our operations related to the development and commercialization of our products in each of these periods.

Net cash used for working capital was $1.2 million for the three months ended March 31, 2025 compared to $4.9 million for the three months ended March 31, 2024.

The increase in cash used in operating activities was primarily driven by inventory purchases to support sales growth as well as changes in accounts receivable and accounts payable associated with the increased sales and acquired inventory, respectively.

Cash Used in Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2025 was $6.0 million compared to $3.7 million for the three months ended March 31, 2024.

Net cash used in investing activities for the three months ended March 31, 2025 consisted primarily of the purchases of property, plant and equipment of $4.2 million, along with the investment in private companies.

The increase in cash related to investing activities is primarily driven by no longer having cash provided by the sale of short term marketable securities to offset cash used in business combinations.

Cash Used in Financing Activities

Net cash used in financing activities for the three months ended March 31, 2025 was $0.1 million compared to $0.6 million for the three months ended March 31, 2024.

Net cash for the three months ended March 31, 2025 consisted of payments on clinic acquisition notes and mortgage notes.

Net cash used for working capital was $14.6 million for the six months ended June 30, 2025 compared to $10.3 million for the six months ended June 30, 2024.

The increase in cash used in operating activities was primarily

driven by inventory purchases to support sales growth as well as changes in accounts receivable and accounts payable associated with the increased sales and acquired inventory, respectively.

Cash (Used in) Provided by Investing Activities

Net cash used in investing activities for the six months ended June 30, 2025 was $9.5 million compared to cash provided by investing activities of $16.0 million for the six months ended June 30, 2024.

Net cash used in investing activities for the six months ended June 30, 2025 consisted primarily of the purchases of property, plant and equipment of $7.7 million, along with the investment in private companies.

The increase in cash used in investing activities was primarily driven by no longer having cash provided by the sale of short term marketable securities to offset cash used in business combinations.

Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2025 was $24.7 million compared to cash used in financing activities of $4.8 million for the six months ended June 30, 2024.

Net cash for the six months ended June 30, 2025 consisted of proceeds from a draw on debt, offset by payments on clinic acquisition notes and installment payments.

Credit Agreement

On August 05, 2024, the Company signed an $100 million term loan and private placement arrangement with Braidwell LP by and among (i) the Company and other borrowers party to the Credit Agreement, (ii) Braidwell LP, and (iii) the financial institutions or other entities from time to time party thereto as Lenders.

On August 5, 2024, the Company signed a $100 million term loan and private placement arrangement with Braidwell LP by and among (i) the Company and other borrowers party to the Credit Agreement, (ii) Braidwell LP, and (iii) the financial institutions or other entities from time to time party thereto as Lenders.

Terms of the financing include a $50 million term loan and $50 million of convertible notes.

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Included in the term loan are financial covenants to maintain cash in certain pledged accounts of at least 25% of the outstanding principal amount of the loan and to maintain certain minimum net product sales during the loan period.

On June 27, 2025, the Company withdrew the delayed draw on the term loan in the amount of $25.0 million.

The $50 million of convertible notes will accrue interest at a rate of 4.75% per annum.

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Using the closing price on August 2, 2024, of $29.56, the amount of common stock subject to the repurchase program represents approximately 169,000 shares or 0.7% of the Company’s outstanding common stock.

No shares have been purchased under this program as of March 31, 2025.

No shares have been purchased under this program as of June 30, 2025.

The dollar limit on repurchases under the program after December 21, 2024 was reduced to $250,000 per annum.

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Our revenue is typically higher in the summer months and holiday periods, driven by higher sales of our trauma and deformity and scoliosis products, which is influenced by the higher incidence of pediatric surgeries during these periods due to recovery time provided by breaks in the school year.

Additionally,

our scoliosis patients tend to have additional health challenges that make scheduling their procedures variable in nature.

Additionally, our scoliosis patients tend to have additional health challenges that make scheduling their procedures variable in nature.

Critical Accounting Policies and Significant Judgments and Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis